Mar 15, 2022
Question of the Day

Question of the Day (Updated): What's the average interest rate on a car loan for someone with bad credit?

Answer: 15.96% [Subprime: 501 - 600 credit score]

Credit Tier (Credit Score) Average New Car Loan Interest Rate Average Used Car Loan Interest Rate
Super prime (781-850) 2.47% 3.61%
Prime (661-780) 3.51% 5.38%
Nonprime (601-660) 6.07% 9.80%
Subprime (501-600) 9.41% 15.96%
Deep subprime (300-500) 12.53% 19.87%



  1. Give one example of an action that can cause a borrower to have “bad credit?"
  2. How does the interest rate affect the monthly payment on a car loan? Explain.
  3. Assume a borrower with bad credit took out a $20,000 car loan. Estimate what the total cost of the loan would be for a 60-month loan. 

Here's the ready-to-go slides for this Question of the Day that you can use in your classroom.


Behind the numbers (CarsDirect):

Let's look at how higher interest rates affect a car loan, using an example. Let's say you're buying a used car, and the loan is for $14,000 with a term of 60 months (five years). Check out how different auto loan interest rates influence the monthly payment and overall cost of the car: 

Credit Tier (Credit Score)  Interest Rate Monthly Payment Interest Paid Total Cost
Super prime (781-850) 3.61% $255.37 $1,322 $15,322
 Prime (661-780) 5.38% $266.64 $1,998 $15,998
 Nonprime (601-660) 9.80% $296.08 $3,765 $17,765
 Subprime (501-600) 15.96% $340.16 $6,409 $20,409
 Deep subprime (300-500) 19.87% $369.90 $8,194 $22,194

Using the average used car loan interest rates from the first table, you can see that as credit scores drop and the interest rate increases, the total cost of financing goes up dramatically.



Go over the basics of credit scores with your students using the NGPF activity INTERACTIVE: FICO Credit Scores!


Want to extend this activity so students can calculate for themselves the cost of bad credit? Check out this NGPF Activity, Calculate: Impact of Credit Score on Loans


About the Author

Mason Butts

After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.

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